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Dr Mangudya

Martin Kadzere Senior Business Reporter
THE Reserve Bank of Zimbabwe has secured $210 million from development finance institutions to fund capital projects in key productive sectors of the economy.

The initiative is part of the Reserve Bank’s broad efforts to improve productivity, boost exports and liquidity into the economy, the central bank governor Dr John Mangudya said in his Mid-Term Monetary Policy Statement released yesterday.

Beneficiaries of the funds obtained from PTA Bank, the Afreximbank and Development Bank of Belarus are firms with capacity to enhance productivity and repay.

Dr Mangudya said in view of the integral role played by export earnings in the generation of foreign exchange resources, there was need to put in place deliberate measures to promote production across the whole spectrum of the economy.

He said the central bank was gradually expanding its role under the development finance programme to go beyond stabilisation and to ensure debt sustainability.

“This is critical to generate the much-needed export earnings to improve liquidity conditions while simultaneously substituting or displacing imports,” said Dr Mangudya.

Since the adoption of dollarisation in 2009, export earnings HAVE accounted for 61 percent of the country’s liquidity, followed by Diaspora and international remittances at 27 percent, external loans and foreign direct investment at 13 percent.

The decline in exports, which was surpassed by the rate of imports growth, resulted in the trade deficit widening from $1,76 billion in the first half of 2014 to $1,83 billion in the first half of 2015.

“It is against the background of high import absorption that liquidity conditions have remained tight with constraining effects on the attainment of potential growth,” said Dr Mangudya.

The RBZ chief said outward-oriented export promotion strategies have gathered momentum in macro-economic management throughout the world and the RBZ was keen to improve liquidity in the national economy through export promotion.

In this regard, the Reserve Bank said it would, through normal banking channels, establish a window to provide affordable pre- and post-shipment export financing.

The successful establishment of this scheme will see pre-shipment credit being extended by commercial banks to exporters for the purchase of raw materials or finished products upon presentation of confirmed export orders or letters of credit.

The credit will help respective exporters meet specific export obligations. Under this scheme, banks would extend credit to exporters and receive refinancing under the interbank market facility, with the RBZ playing a regulatory and oversight role.

Post-shipment finance, on the other hand, shall be granted to exporters after shipment of goods.

Dr Mangudya said the facility will help exporters avoid the waiting period between shipping of goods and the receipt of payment. Banks will recover loan repayments from export proceeds.

Dr Mangudya noted that Zimbabwe’s export basket is heavily dependent on tobacco sales.

He said the vulnerability of the country’s liquidity conditions to tobacco inflows underlines the need to explore ways of export diversification or widening the range of critical products that the country exports.

The country needs to take advantage of the normalisation of relations with the European Union to expand horticultural and other exports in which the country has competitive and comparative advantages.

Dr Mangudya said the Reserve Bank would be working closely with the Agricultural Marketing Authority, the Horticulture Promotion Council and banks to put in place a facility for the deliberate promotion of targeted horticulture exports.

The enhancement of mineral exports will also help diversify the country’s export base.

Dr Mangudya also highlighted the need to synchronise and streamline the issuance of export permits by various regulatory authorities to reduce export barriers.

He said while some export permits were necessary for special considerations like food security, some export permits would need to be scrapped as they have outlived their usefulness in a liberalised foreign exchange environment. Export permits increase the cost of doing business and can be “a hive of corruption,” he said.

Dr Mangudya said efforts should be directed to attract foreign direct investment inflows, which are essentially non-debt creating, critical for the successful resuscitation of industrial production.

It is also expected that the sustenance of current efforts to improve the conditions of doing business coupled with the resuscitation and re-opening of local companies such as Cairns Holdings, CAPS Holdings and Blue Ribbon among others, will help attract capital flows into Zimbabwe.

This will result in improvements to the balance of payments through the compression of imports.

It is also critical that financial institutions and the Government to deliberately target financial resources to serious and productive beneficiaries to encourage meaningful production across all the sectors of the economy as opposed to trying to provide “too little to everyone with minimum impact.”

Mid-Term monetary policy highlights

• Banking sector profitability up to $43 million from $26 million
• Banks aggregate capital up 19 percent to $75 million
• Banks to notify RBZ on utilisation of offshore loans
• Exchange control approval requirement for non-export sales removed
• Bank loans and advances increase to $4 billion from $3,88 billion
• Non-performing loans down from 15 to 13 pc
• Non-performing loans seen at 10 percent by June 2016
• Annual inflation to remain depressed